client alert

INSURANCE | VIETNAM |

22 DECEMBER 2014

OVERVIEW OF INSURANCE REGULATIONS

The Vietnamese insurance market is one of the most dynamic in South East Asia and by many
different measures is seen to be growing rapidly. This creates great potential for investors but
constraints and challenges remain that inhibit access for foreign-invested insurers.
This Client Alert identifies the types of insurance products in Vietnam, the avenue channels
down which foreign insurers can gain access and conditions that need to be satisfied to
achieve approval.

THE VIETNAMESE MARKET

Vietnam currently has approximately 59 insurance companies operating in the market. Of
these, 28% are life insurers, 49% are non-life insurers, 20% are insurance brokers and 3% are
re-insurance companies
The life insurance market is dominated by foreign insurers with 88% being foreign-invested,
whereas, only 37% of non-life insurers are foreign-invested. Although there are only five
foreign-invested insurance brokerage companies out of a total of twelve, they are holding a
larger market share than their domestic peers.
The re-insurance market is comprised of only two domestic entities, Vietnam National Reinsurance
Corporation (Vinare) and PetroVietnam Reinsurance, both are "State-owned groups".
Below is a chart reflecting the Vietnam insurance revenue break-down:

Insurance revenue breakdown in 2012 (*)

Health insurance
17%
Property and
damage
insurance
56%

25%
2%

General liability
insurance
Other kinds of
insurance

(source: Vietnam's Ministry of Finance (*) 2012: last available figures;

INSURANCE | VIETNAM |

22 DECEMBER 2014

REGULATION ENFORCEMENT AND INSURANCE PRODUCTS

Vietnams insurance industry is regulated by the Ministry of Finance ("MoF"). The MoF is
responsible for the issuance of establishment and operating licences for insurers and insurance
brokers as well as the supervision of their operations. An agency of the MoF, the Insurance
Supervisory Authority, supervises the insurance business and market in Vietnam and acts as
the regulator.
The Vietnamese insurance industry is built upon three main groups:

life insurance;

non-life insurance, and

health insurance.

Insurance entities must operate only within the scope as prescribed in their licence, and as a
general rule, insurers are not permitted to conduct simultaneously life and non-life insurance
business, except where a life insurer conducts personal accident and health care insurance as
a supplement to life insurance.

Life Insurance
Life insurance products permitted include:

Traditional insurance: whole life insurance, pure endowment insurance, term life insurance,
endowment insurance and annuity insurance;

Investment-linked insurance: universal life insurance and unit-linked insurance; and

Pension insurance.

The MoF details terms and conditions which must be satisfied by insurers providing life
insurance products, and personal accident and health care insurance ancillary to insurance
products.

Non-life Insurance
Non-life insurance products include property and damage insurance, insurance for goods in
transportation, aviation insurance, motor vehicle insurance, fire and explosion insurance,
marine hull and ship owners civil liability insurance, public liability insurance, credit and
financial risks insurance, business loss insurance, agriculture insurance and guarantee
insurance.
The MoF also details compulsory forms of insurance in respect of which (i) the MoF
promulgates the applicable insurance terms and condition, premium scales and minimum sums
insured and (ii) a licensed insurer must not refuse to underwrite. This "compulsory" insurance
includes:

Civil liability insurance for motor vehicle owners;

Civil liability insurance for aviation carriers to passengers;

Professional indemnity insurance for legal consultancy activities;

Professional indemnity insurance for insurance brokers; and

Fire and explosion insurance.

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The MoF does not provide insurance terms and conditions, and premium scale for non-life
insurers of non-compulsory products whom are free to adopt their own and are not required to
obtain prior MoF approval for these. However, in circumstances in which non-life insurers fail to
ensure financial stability of itself or the rights of the policy holder, the MoF may request a nonlife insurer to cease underwriting products and request the insurer make specific amendments
to such policies and terms.

Health Insurance
Products categorised as health insurance include: personal accident insurance, medical
expenses insurance and health care insurance. Currently in Vietnam, these products are
provided either by non-life insurers or by life insurers as part of a life insurance package. There
has yet been any insurance company set up to provide solely health insurance products.
Similarly to life insurance, terms and conditions and premium scales of health care insurance
products must be ratified by the MoF.

Re-insurance
Foreign insurers are permitted to provide unrestricted cross-border reinsurance services. When
accepting to reinsure liability of a Vietnamese insurer, a foreign lead reinsurer and foreign
reinsurers of more than 10% of the total liability under the policy must have at least a BBB+
rating by S&P or Fitch, a B++ rating by A.M. Best, or a BAA1 rating by Moodys, or they
must have been granted equivalent ratings in the most recent fiscal year.

INSURANCE DISTRIBUTION METHODS

Infrastructure and geographical difficulties have encouraged the growth of multichannel
distribution strategies for insurers in Vietnam. The use of agents, brokers, bancassurance, and
telemarketing is common. Bancassurance in particular has witnessed a strong growth with
more insurance companies using this distribution channel to increase their market share. In
particular with regard to bancassurance, banking institutions have acted as a sales channel for
insurance companies (both life and non-life) in recent years.
However, Vietnam did not have specific regulations on bancassurance. Despite the apparently
distinctive financial expertise and skills that banking institutions and their employees have,
bancassurance agents (banking institutions and their staff members selling insurance products)
used to be regulated by general insurance laws in the same way as ordinary insurance agents
(ordinary corporate agents and individual agents respectively). The tight regulatory controls
over mandatory insurance agent credentials and the lack of clear and distinctive guidelines for
bancassurance activities often made participation of banking institutions in bancassurance
arrangements commercially unfeasible.
As of 1 September 2014 this has changed. A first-ever and specific set of regulations, Circular
No. 86/2014/TTLT-BTC-NHNNVN (Joint Circular 86), on bancassurance in the field of life
insurance was issued by the MoF in conjunction with the State Bank of Vietnam (being the
regulator of the banking activities) and entered into force on that date. Joint Circular 86 officially
recognises the bancassurance business structure, aims to remove obstacles inhibiting bank
participation and lightens the burden on resources of bancassurance providers, notably in
terms of compulsory training requirements. It is hoped that Joint Circular 86 will help to further
promote the bancassurance model in Vietnam.

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INSURANCE | VIETNAM |

22 DECEMBER 2014

MEANS OF ACCESS TO THE VIETNAMESE INSURANCE MARKET

Legal entities
The most common means of access for foreign insurers and brokers is to establish a 100%
foreign-owned insurance company or cooperate with a local insurer in the form of a joint
venture enterprise, usually in the form of a limited liability company. Entering into a joint
venture with a local insurer can provide established distribution channels and reduce the
volume of legal compliance and red tape.
Alternatively, a foreign insurer may acquire capital contributions in an existing Vietnamese
insurance company, and 100% ownership is permitted if the existing insurer is a limited liability
company. However, things become more complex when acquiring shares in an existing
shareholding insurance company; the following foreign ownership caps will apply:

An individual shareholder can only hold up to 10% of the charter capital of the target
company;

An institutional shareholder can only hold a maximum of 20% of the charter capital of the
target company exceptions may apply e.g. acquisition of shareholding in a
distressed/restructured target insurance company or acquisition to become a strategic
shareholder); and

The maximum shareholding owned by a shareholder and related persons/affiliates in

aggregate is limited to 20% of the charter capital of the target company.

Representative offices or branches

Setting up a representative office can be a quick way to gain access to the market but few
insurers have shown interest in the approach. Representative offices do not constitute
business entities which means they are prohibited from engaging in profit-generating
activities.

Cross-border supply
Foreign insurance enterprises may provide insurance to foreign-invested enterprises in
Vietnam (with more than 49% foreign-owned capital) and foreigners working in Vietnam.

REQUIREMENTS FOR INVESTMENT

Conditions applicable to the offshore parent entity
In order to invest into Vietnam, a foreign insurer needs to satisfy certain criterion set out under
Vietnamese laws. The most commonly seen conditions are (i) at least 10 years' experience in
insurance operations; (ii) assets of at least USD 2 billion in the year prior to the year of lodging
the application file (for setting up an insurance company); (iii) profitability for a period of three
consecutive years prior to the year of lodging the application file and (iv) approval of the
insurance regulator of the home country of the foreign insurer.
Depending on the nature of the insurance operations in Vietnam additional conditions may be
applicable. For example, to set up a non-life branch, a foreign insurer must satisfy that (i) it is
head-quartered in a jurisdiction with which Vietnam has signed commercial treaties that allow
the establishment of branches of foreign non-life insurance businesses in Vietnam and (ii) the
insurance regulator of the home country of the foreign insurer has signed a cooperation
agreement with the MoF in relation to the management and supervision of the activities of
branches of foreign non-life insurance businesses in Vietnam.

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22 DECEMBER 2014

Another example is the cross-border supply of insurance or insurance brokerage services. The
following additional conditions are applicable:

The foreign insurer/broker must be in a country with which Vietnam has already signed
international trade agreements regarding the supply of cross-border insurance into Vietnam
(e.g. a WTO member);

Cross-border insurance services must be provided through an insurance brokerage

enterprise licensed in Vietnam; and

Other conditions regarding the minimal asset backing (USD 2 billion applicable to offshore
insurers or USD 100 million applicable to offshore brokers), credit rating (at least a BBB+
rating by S&P or Fitch, a B++ rating by A.M. Best, or a BAA1 rating by Moodys or
equivalent ratings), profitable operations in the last three years, security deposit of at least
VND100 billion (about USD50 million) with a Vietnam-incorporated bank, etc.

Invested legal capital

In Vietnam, legal capital refers to the minimum amount of registered and paid-up capital that
an offshore parent company is required to contribute as owners equity to its presence in
Vietnam.
The minimum levels of legal capital applicable to various insurance activities are set out below:

Levels of required legal capital

Activities

VND

USD equivalent

1. Non-life insurance

300 billion

15 million

and

health insurance

300 billion

15 million

and

aviation insurance

350 billion

17.5 million

and

satellite insurance

400 billion

20 million

2. Life insurance

600 billion

30 million

and

health insurance

600 billion

30 million

and

unit-linked insurance

800 billion

40 million

1 trillion

50 million

3. Health insurance

300 billion

15 million

4. Non-life re-insurance

400 billion

20 million

and

400 billion

20 million

5. Life re-insurance

700 billion

35 million

and

700 billion

35 million

and

pension insurance

health reinsurance

health insurance

With these levels of legal capital, an insurer/broker is allowed to open up to 20 branches and/or representative offices.
For each additional branch and/or representative office, VND10 billion (approximately USD 500,000) needs to be
supplemented to the charter capital of the insurer/broker.
USD-equivalent is converted based on exchange rate of USD1 = VND20,000 for ease of reference. Actual exchange
rate is different and may change from time to time.
This requirement is applicable to the owners equity capital of the local insurance company. This should be checked
against the company's financial statements.

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6. Health re-insurance

22 DECEMBER 2014

400 billion

20 million

1,100 billion

55 million

200 billion

10 million

9. Direct insurance brokerage

4 billion

200,000

and

8 billion

400,000

4 billion

200,000

7. All-types re-insurance
8. Non-life branch

re-insurance brokerage

10. Re-insurance brokerage

Solvency margin
In addition to the legal capital requirement, insurers must also invest 2% of the applicable legal
capital as a security deposit into a commercial bank operating in Vietnam. The security deposit
may only be used to meet undertakings to policy-owners when it is insolvent and upon written
approval of the MoF. Insurers must also comply with other prudential requirements, such as:

minimum solvency margins,

premium reserves,

compulsory reserve fund and

contributions to the policy-owner protection fund etc.

Money laundering
Anti-money laundering legislation exists under which insurance companies are obliged to
establish internal regulations on anti-money laundering; collect, verify and monitor information
about their clients; report to the State Bank of Vietnam and take particular measures (e.g.
postponement of transactions or freezing of accounts, sealing or seizing assets based on
decisions of state authorities) where transactions are suspicious, of a high value or carried out
by "risky" clients.

CONTACTS
SAMANTHA CAMPBELL
Partner
samantha.campbell@gide.com
NASIR PKM ABDUL
Of Counsel
nasir.pkmabdul@gide.com
PHONG NGUYEN
Senior Associate
phong.nguyen@gide.com

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